Alternative Investment Managers Can Thank Pension Funds for Growth

June 23, 2008 ( - During 2007 alternative assets managed on behalf of pension funds by the world's largest 99 investment managers grew by 40% to $822 billion from $586 billion the year before, according to the latest Global Alternatives 99 research produced by Watson Wyatt in conjunction with Global Investor magazine.

According to a press release on the survey data, at the end of 2007, the top 50 managers within the areas of real estate, fund of hedge funds (FoHFs), and private equity fund of funds (PEFoFs) managed $512 billion, $146 billion, and $139 billion, respectively.  Infrastructure and commodities remain smaller, but growing alternatives classes among pension funds with the top 10 managers in these areas being responsible for $43 billion and $16 billion of assets, respectively.

The majority (47%) of alternative assets managed on behalf of pension funds are invested in North America, while 39% are invested in Europe, and 10% in Asia-Pacific, the release said. In terms of the domiciles, North American managers account for 63% of total assets, while UK and continental European managers account for 18% and 12%, respectively. Asia Pacific is represented by 11 managers from Australia and Hong Kong, accounting for 7% of total assets.

Roger Urwin, Global Head of Investment Consulting at Watson Wyatt, said in the release: “There is no let up in the demand for alternative assets as pension funds around the world seek to diversify their portfolios and capture alpha through absolute return strategies. This is the main reason for such significant growth of assets, with the larger firms being the main beneficiaries of growth. Other features of the year were the increasing concentration and ongoing consolidation in the industry as well as the rise of infrastructure as an asset class.”

As for manager rankings, the Watson Wyatt research found that over half the top 99 managers are based in the U.S., while over a third are based in Europe. Real estate managers lead the ranking, occupying the top nine positions and accounting for 62% of the assets.

Infrastructure managers were included in the research for the first time this year and all ten new entrants were ranked in the top 99 and account for 5% of the assets, according to the press release.

AEW Capital Management is the largest real estate manager of pension fund assets in the world with $47.4 billion in assets, while HarbourVest Partners tops the private equity fund of funds table with $20.1 billion.

Blackstone Alternative Asset Management manages the largest proportion of FoHF assets on behalf of pension funds, with a total of $15.4 billion. Macquarie Group tops the Infrastructure table with $20.1 billion, while Allianz SE is the leading pension fund commodities manager with $7 billion.

The full Global Alternatives Survey and ranking is here .